President Donald Trump’s heavy-handed tactics could alienate global allies and end up handing China a victory in a trade war — even though many world leaders agree that China’s trade tactics should be reformed.
After annoying key trading partners by demanding trade concessions from them, Trump could fail to gather a coalition to exert maximum pressure on Beijing. And without that, China could dodge making significant reforms that would change its long-term trade surplus.
It’s also possible that China could simply outlast the U.S. in a protracted standoff. Its entrenched authoritarian regime doesn’t face the same political risks that Trump does. And Americans could be less willing to suffer higher prices and shortages of consumer goods than the Chinese.
“I think right now that the Chinese are playing this a little more adroitly than the Trump administration,” said Scott Kennedy, a China analyst at the Center for Strategic and International Studies. “There's more global sympathy with their position, even though their industrial policy machine is a danger to everyone else.”
Trump has raised doubts in the business community that he actually has a strategy that will produce meaningful changes in Chinese business practices, rather than simply inflict pain on both sides of the Pacific.
If China appeases Trump by making large purchases to reduce the U.S. trade deficit, Trump could tout that as victory. But others would count it as a loss by allowing China to escape without making significant reforms. In addition, other countries who lost sales because of Beijing’s new preference for American goods would be displeased.
And while Trump’s impulse to stand up to China is popular with many in his base, he's in a less secure position politically than his Chinese counterpart, Chinese President Xi Jinping, who has amassed so much power that China recently changed its constitution to allow him to serve indefinitely, instead of requiring him to step down in five years at the end of his second term.
“Xi Jinping seems to believe that he can outlast this president,” an industry official who spoke on condition of anonymity said. “He may be there for another 20 years … At most, Trump is there for another six years and maybe a lot less.”
On Wednesday, Beijing ratcheted up the tensions by going straight for the jugular, saying it would impose 25 percent tariffs on key U.S. export items like soybeans, aircraft and cars. That means the tariffs could directly affect farmers and workers who voted for Trump.
“I think the Chinese view him as a paper tiger, but one that's still dangerous,” Kennedy said. That’s because Trump is less beholden to traditional business interests than most politicians and therefore more likely to take big risks, he said.
Meanwhile, Xi is widely expected to give a speech this weekend in southern China announcing significant market liberalization and potentially puncturing the premise for Trump's trade action.
“That will be an interesting move on their part to see if they can put forth enough goodies to attract the Trump administration's attention or at least sway opinion from investors, other countries who are trying to decide which of these two sides they want to support,” Kennedy said.
“You've got Japan, you've got South Korea, you got the Europeans, the Germans who will be judging what comes out of Xi Jinping's speech. So I think we're going to see efforts on both sides to up the ante and grab the moral high ground in the coming week,” he added.
A big question, which U.S. business officials said is still very much in doubt, is whether China is actually willing to negotiate changes to its industrial policies that are the root cause of business complaints from around the world. The Chinese government said it was open to negotiations, but insisted that the U.S. fiscal policies and export controls are mostly to blame for the huge U.S. trade deficit with China, which totaled a record $375 billion last year.
The Business Roundtable, which represents leading American companies, said Tuesday it agreed with the administration’s concerns “regarding China’s unfair trade practices, including theft of intellectual property, restrictions on foreign investment, and policies that foster unfair competition.”
“But unilaterally imposing $50 billion of new tariffs without a long-term strategy that leads to economic reforms in China will only hurt America’s businesses, workers, and families,” BRT added. “Instead, the administration should work with U.S. allies on an approach that advances meaningful reform in China without imposing significant harm on America’s economy.”
Instead of making that case and gathering international support to go after China, Trump alienated key allies and trading partners in March by imposing new tariffs on steel and aluminum imports in the name of national security. He later softened the blow by temporarily exempting the European Union, Canada, Mexico and four other trading partners. But those countries are still required to make some other concession to be permanently exempted, as South Korea recently did after it agreed to a quota on its steel exports to the U.S.
“It's ironic that just at the moment when much of the world agrees with the United States on the pressing need for Chinese reform, we're kind of wrong-footing ourselves by needlessly picking fights with our friends,” said Daniel Price, a former White House senior economic adviser who served under George W. Bush.
To win over allies, the administration needs to enumerate its demands, set out a timetable for China to act, explain to Beijing the consequences of failing to reform. “Make sure your allies are in lockstep with you,” Price said. “Thus far from all appearances, it seems that the administration has adopted a policy of shoot first, set strategy later.”
A USTR official defended the administration’s approach, saying Trump threatened to impose tariffs on China during the 2016 campaign and gave Beijing a number of opportunities since taking office to make changes to address U.S. concerns.
Under the schedule laid out Tuesday night by USTR, the Trump administration could impose the new U.S. tariffs as early as late May, although it did not set any deadline for making that move. China said it would wait until the U.S. acts before imposing its new duties.
U.S. Commerce Secretary Wilbur Ross and other officials seemed to calm the markets by suggesting that talks would avert further trade retaliations.
The fact that Xi and Trump have “a good personal relationship” bodes well for getting a deal, Ross added.
“They’re both very strong leaders. [But] That doesn’t mean this is going to be Armageddon,” Ross said. “One of the good things about people having a relationship with each other when there is a conflict coming up is that at least there’s a dialogue. At least there’s a mutual respect and those are usually the foundation for ultimately reaching a deal.”